Following the critical success of A Colour Box (1935), Len Lye made another abstract advertisement for the General Post Office with this surreal, innovative film. Whereas A Colour Box was etched directly onto celluloid, Rainbow Dance employs shot footage and overlays it with a number of abstract colour effects. Lye experimented with the colour stock Gasparcolor, using it to create 'fantastic', rather than 'realistic' images.

Gasparcolor stock contained three levels of dye on the celluloid, which Lye manipulated through different levels of exposure. When shooting the original footage, Lye used black and white sets, which allowed him to adjust the colours later in a controlled way. At times Lye uses complex stencil patterns on the silhouetted figure, producing the 'colour echoes' that appear throughout the film.

While Lye used these colour experiments to create 'fantastic' effects, Rainbow Dance nevertheless contains more recognisable 'concrete' images than his former films. The main image is that of a dancer, a recurring motif throughout the film. The role featured a real dancer, Rupert Doone, who appears in silhouette or streaked with different colours making him both a real and abstract figure, constantly transforming from one to the other in what ends up as a kind of film ballet.

The colour effects in Rainbow Dance are partly influenced by 'absolute film', and can be connected to a musical use of colour, traceable back to eighteenth-century experiments with 'colour-music'. This relates to Lye's wish to escape a 'literate' form of filmmaking in order to produce a 'cinema of sensation'. At the same time Lye was moving away from the purely abstract movements that characterised A Colour Box. Yet his move towards filming photographically-based material was carefully planned and painstakingly executed to create a new kind of cinematic reality. The advanced effects, visual motifs and music that Lye used on this short film can be seen as a precursor to today's music videos.